Spyglass Resources Corp. Announces 2015 First Quarter Results

All values are in Canadian dollars unless otherwise indicated. Conversion of natural gas volumes to barrels of oil equivalent (boe) are at 6:1.

CALGARY, May 13, 2015 /CNW/ - Spyglass Resources Corp. ("Spyglass", or the "Company") (TSX: SGL, OTCQX: SGLRF) announces unaudited interim financial and operating results for the quarter ended March 31, 2015. Selected financial and operational information is outlined below and should be read in conjunction with Spyglass' interim Consolidated Financial Statements and Management's Discussion and Analysis on www.sedar.com and also available at www.spyglassresources.com.

First Quarter Summary

• Production for the first quarter of 2015 exceeded expectations averaging 11,058 boe/d, a decrease from 14,560 boe/d in the first quarter of 2014 reflecting the Company's successful 2014 asset disposition program, partially offset by the light oil and natural gas drilling and optimization program completed in 2014.
• Capital expenditures for the first quarter of 2015, were $5.6 million, including spending on the final stages of the Dixonville pipeline remediation project, maintenance capital and drilling costs for a 1 (0.1 net) non-operated well in the Herronton area.
• Operating costs for the first quarter of 2015 were $21.58 per boe, as compared to $22.31 per boe in the first quarter of 2014. Operating costs (on an absolute dollar basis) improved in the first quarter of 2015 by $7.8 million (27 percent) as compared to the same period last year, as a result of the Company's asset disposition program coupled with ongoing cost reduction initiatives.
• Cash general and administrative expenses for the first quarter 2015 were $3.00 per boe, as compared to $3.41 per boe in the first quarter of 2014. General and administrative expenses (on an absolute dollar basis) decreased by $1.5 million (33 percent) in the first quarter of 2015 as compared to the same period last year, largely achieved through staff reductions and other cost cutting initiatives undertaken to navigate the current market conditions.
• Crude oil and natural gas prices have experienced a significant decline that began in the fourth quarter of 2014 which continued through the first quarter of 2015; average realized prices are down by 51 percent for crude oil and 43 percent for natural gas as compared to the first quarter of 2014.
• Funds flow from operations for the first quarter of 2015 was $4.8 million ($0.04 per share), reflecting significantly lower commodity pricing during the quarter.
• Net debt at March 31, 2015 was $195.7 million, comprised of $182.1 million in bank debt and a $13.6 million working capital deficit. The annual review of the Company's credit facility has been extended to May 29, 2015. Spyglass will issue a press release once the review has concluded.
• Net loss for the first quarter of 2015 was $80.0 million ($0.63 per basic and diluted share) as compared to a net loss of $11.7 million ($0.09 per basic and diluted share) in the same period of 2014. The increase in net loss is primarily due to non-cash deferred tax expenses recognized in the first quarter of 2015 as a result of the write down of deferred tax assets.

Selected Financial and Operating Information

Outlook

Drastically lower commodity prices present a challenging business environment for the Company as 2015 progresses.  Spyglass has prudently managed costs through reductions in staffing levels, renegotiating contract rates with business partners, temporary salary reductions and scaling back the capital program. 

Management anticipates that the 2015 capital program coupled with the Company's relatively low 21 percent decline rate is expected to result in average production of approximately 9,000 boe/d for the year.

Subsequent to March 31, 2015, the Company and its lenders signed a notice to lenders and consent form to extend its annual review and borrowing base determination to May 29, 2015.  The determination of the borrowing base incorporates factors including the Company's reserves and commodity prices which have been significantly impacted by recent global market conditions.  Should the annual renewal result in a significant reduction in the borrowing base or should the credit facility or a portion thereof not be renewed on a revolving basis, this could result in significant challenges for the Company.  As such, the Company has included disclosure concerning going concern uncertainty within its financial statements.  Management is taking steps to manage its liquidity and is investigating alternative financing arrangements, should they be necessary. The Company continues to meet all of its obligations with respect to ongoing operations. 

Our attention remains on managing the resources of the Company through a difficult commodity price environment and maintaining the capability to resume development activity as prices improve.

Risk Management Update

Spyglass uses a commodity price risk management program to mitigate the impact of crude oil and natural gas price volatility on cash flow which is intended to support the capital program. Spyglass hedges production up to 24 months forward, using a combination of fixed price and participating products. Please refer to the Company's website at www.spyglassresources.com under Investors for a detailed list of the Company's risk management contracts.

For the period of May to December of 2015, Spyglass has an average of 1,125 bbl/day of crude oil production hedged at an average fixed price of WTI CDN$99.93/bbl.   In addition, Spyglass has hedged the Western Canadian Select ("WCS") oil differential at CDN$22.80/bbl for 2015 on 500 bbl/day.  The company has hedged an average of 8,620 GJ/day (8,050 Mcf/day) of natural gas production at an average fixed price of $2.96/GJ ($3.17/Mcf). 

Power costs are a significant driver of operating costs and as a result, the Company has hedged power usage in order to reduce operating cost volatility.  Currently, 40 percent of 2015 power requirements are hedged at $51.33/MWH.

Annual General Meeting of Shareholders

Mr. Randall Findlay has chosen not to stand for re-election to Spyglass' Board of Directors ("Board") at the Company's May 13, 2015 Annual General Meeting ("AGM").  Mr. Findlay has been a valued member of the Board since its formation in March 2013.  The Company would like to thank Mr. Findlay for his significant contributions to Spyglass and wish him all the best in the future. 

Spyglass will hold its AGM on Wednesday, May 13, 2015 at 2:00 p.m. MT (4:00 p.m. ET).  Please note the address of the AGM at the Jamieson Place Conference Centre, Jamieson Place, 3^rd Floor, 308 – 4^th Avenue SW, Calgary, Alberta.

A live webcast of the presentation can be accessed on Spyglass' website at www.spyglassresources.com, or by following the below link: http://event.on24.com/r.htm?e=974127&s=1&k=9F6ED0751F708F844417847ED653BEFB.

Non-GAAP Measures

This press release includes terms commonly referred to in the oil and gas industry that are considered non-GAAP measures. These non-GAAP measures do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS" or, alternatively, "GAAP") and therefore may not be comparable with the calculation of similar measures by other companies.

"Funds from operations" represents cash flow from operating activities adjusted for changes in non-cash working capital, transaction costs and decommissioning expenditures.

"Operating netbacks" are determined by deducting royalties, operating and transportation expenses from oil and gas revenue, calculated on a per boe basis.

"Cash netbacks" are determined by deducting cash general and administrative, realized hedging losses, interest expense and other income from Operating netbacks, calculated on a per boe basis.  

"Net debt" is calculated as bank debt plus working capital deficiency excluding current portion of risk management contracts.

Reader Advisory and Note Regarding Forward Looking Information

Certain statements contained within this press release, and in certain documents incorporated by reference into this document constitute forward looking statements.  These statements relate to future events or future performance. All statements, other than statements of historical fact, may be forward looking statements.  Forward looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements.

In particular, this press release contains the following forward looking statements pertaining to, without limitation, the following: Spyglass' (i) future production volumes and the timing of when additional production volumes will come on stream; Spyglass' (ii) realized price of commodities in relation to reference prices; (iii) future commodity mix; (iv) future commodity prices; (v) expectations regarding future royalty rates and the realization of royalty incentives; (vi) expectation of future operating costs on a per unit basis; (vii) the relationship of Spyglass' interest expense and the Bank of Canada interest rates; (viii) future general and administrative expenses; future development and exploration activities and the timing thereof; (ix) deferred tax liability; * estimated future contractual obligations; (xi) future liquidity and financial capacity of the Company; (xii) ability to raise capital and to add to reserves through exploration and development; (xiii) ability to obtain equipment in a timely manner to carry out exploration and development activities; (xiv) ability to obtain financing on acceptable terms, and (xv) ability to fund working capital and forecasted capital expenditures.  In addition, statements relating to "reserves" or "resources" are deemed to be forward looking statements, as they involve assessments based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future.

We believe the expectations reflected in the forward looking statements are reasonable but no assurance can be given that our expectations will prove to be correct and consequently, such forward looking statements included in, or incorporated by reference into, this press release should not be unduly relied upon.  These statements speak only as of the date of this press release or as of the date specified in the documents incorporated by reference in this press release.  The actual results could differ materially from those anticipated as a result of the risk factors set forth below and elsewhere in this press release which include: (i) volatility in market prices for oil and natural gas; (ii) counterparty credit risk; (iii) access to capital; (iv) changes or fluctuations in production levels; (v) liabilities inherent in oil and natural gas operations; (vi) uncertainties associated with estimating oil and natural gas reserves; (vii) competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; (viii) stock market volatility and market valuation of Spyglass' stock; (ix)geological, technical, drilling and processing capabilities; * limitations on insurance; (xi) changes in environmental or legislation applicable to our operations, (xii) our ability to comply with current and future environmental and other laws; (xiii) changes in tax laws and incentive programs relating to the oil and gas industry, and (xiv) the other factors discussed under "Risk Factors" in the Company's 2014 Annual Information Form.

Readers are cautioned that the foregoing lists of factors are not exhaustive.  The forward looking statements contained in this press release and the documents incorporated by reference herein are expressly qualified by this cautionary statement.  The forward looking statements contained in this press release speak only as of the date thereof and Spyglass does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws. 

Barrel of oil equivalents or BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. As the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

This press release shall not constitute an offer to sell, nor the solicitation of an offer to buy, any securities in the United States, nor shall there be any sale of securities mentioned in this press release in any State in the United States in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of any such State.

SOURCE Spyglass Resources